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Eurozone governments have rushed to raise debt early this year in an effort to take advantage of bumper investor demand.
The bloc’s members have sold €200bn of bonds since the start of 2024. Issuance in January was the highest monthly total on record and about 20 per cent above the same period last year, according to analysts at Barclays.
Investors have been piling in to government bonds, attracted by yields that are still well above levels of a few years ago, even after a market rally late last year. Meanwhile, governments with record amounts of bonds to sell are getting deals away while investor appetite lasts.
“There was an enormous consensus at the end of last year that supply was going to be problematic and the reality has been that the record supply in January has been absorbed extremely well,” said Andres Sanchez Balcazar, head of global bonds at Pictet Asset Management.
He added that new bond issues at the start of the year came with “large concessions” — meaning yields higher than those available in secondary market trading. But these tightened “fairly aggressively” as books were built, as governments received better prices than they had initially expected.
Issuance through syndication — a type of sale where a group of banks is paid to drum up demand — has been particularly high at €83bn, about 80 per cent higher than January last year. Syndications can be an opportunistic way for governments to issue debt quickly, as opposed to bond auctions which run to regular schedules.
“The market continues to show amazing appetite to absorb European government bonds and this is largely down to the change in macro outlook,” said Rohan Khanna, head of euro rates strategy at Barclays. He added he was “surprised” that Italian and German bond sales this week had come so early.
The eurozone has issued about €54bn of government debt this week alone, an unusual move for such a busy week in the economic calendar with the release of eurozone inflation figures, the Federal Reserve’s interest rate meeting and a series of employment data that could disrupt markets.
“European sovereigns are being opportunistic and thinking we can’t get this out the door fast enough,” said Imogen Bachra, head of non-dollar rates strategy at NatWest, who was also surprised by the level of issuance this week.
European governments need to sell huge volumes of bonds this year. The investment arm of the Italian insurer Generali estimated that issuance, net of redemptions and European Central Bank purchase programmes, would reach €680bn this year, 7 per cent higher than in 2023, and that “supply fatigue” would set in as the year progressed.
Markets have already priced more than five quarter-point rate cuts for the ECB by the end of the year, encouraged this week by lower than expected German and French inflation data. Eurozone consumer price growth eased to 2.8 per cent in January.
Mohit Kumar, a strategist at Jefferies, said that higher yields relative to recent history were “attracting investors who have for a number of years stayed away from fixed income”, while there was also a lot of cash in money market funds waiting to be deployed.
Spain attracted €138bn of bids for €15bn of new 10-year debt — a record order book for an individual government bond. That followed Belgium receiving €75bn in bids for its 10-year bond, its highest level, while Italy received €91bn for its 30-year debt sale, the largest Italian order book since the start of 2021.